Idenix and Achillion Jump on Takeover Talk

by Barry Cohen | January 10, 2012 12:28 pm

And then there were two. That is, two of the four companies mentioned in our Nov. 21, 2011, article about acquisition targets developing hepatitis C treatments[1]. The field was further narrowed this past weekend with the announcement by Bristol-Myers Squibb (NYSE:BMY[2]) that it would fork over $2.5 billion to buy Inhibitex (NASDAQ:INHX[3]).

The $26-a-share purchase price represents a 163% premium to where Inhibitex closed Friday. On Monday, the company’s shares closed up 140% to $23.70, and were staying there in Tuesday trading.

The Bristol announcement caused investors to bet heavily that two other prominently mentioned hepatitis C developers just moved up to the top of the shopping lists of bigger pharma companies. Idenix Pharmaceuticals (NASDAQ:IDIX[4]) of Cambridge, Mass., soared 37% to $9.66 on Monday, while New Haven, Conn.-based Achillion Pharmaceuticals (NASDAQ:ACHN[5]) climbed $1.80 to $9.72, a nearly 23% boost. Idenix added to its gains on early Tuesday, up 2.5%, while Achillon slipped back 1.75%.

Gilead Sciences (NYSE:GILD[6]) got the hepatitis C buying frenzy rolling a few months ago when it said it was paying $134 a share for Pharmasset[7] (NASDAQ:VRUS[8]), which is testing the first oral treatment for the disease. Such a hepatitis C treatment is considered the Holy Grail by pharma companies because it would mean patients could avoid the nasty side effects that go along with the interferon injections that are required with the current therapy.

In the past year, hepatitis C has taken center stage on the pharmaceutical treatment front, and for good reason. The blood-borne disease accounts for about 12,000 deaths a year in the U.S., according to a Wall Street Journal[9] article. Hepatitis C affects more than 3 million Americans, and that number is expected to increase as the baby boomers age. Less than half of the people with hepatitis C who receive the current two-drug treatment are cured, emphasizing the need for a more effective medication.

Idenix likely became more appealing to a suitor Monday when an independent safety panel gave the company the OK to resume the trial of its hepatitis C drug, reported Reuters[10]. The treatment had been on hold since last September after the FDA raised concerns that the drug could be causing liver problems in patients. Company data showed it was well tolerated, and patients had no serious issues.

Evidently Idenix has made no secret of its desire to be purchased. Investors might hear more about it plans when company management presents Wednesday at the J.P. Morgan Healthcare Conference in San Francisco.

Based on the premiums garnered by Pharmasset and Inhibitex, it appears there’s an opportunity for investors to cash in if Idenix and/or Achillion are bought out. Achillion probably has less to offer an acquirer, so the upper end of its sales price has been pegged at $2 billion[11] by a Seeking Alpha contributor. That translates into a per share price of just under $29. However, the buyout price could be as low as half that number.

As a sidelight, speculation exists there was some trading hanky-panky that proceeded the Inhibitex purchase by Bristol. Jon Najarian, the co-founder of TradeMonster.com[12], said his firm detected some unusual activity in INHX[13] calls last Friday, ahead of the buyout news. One options trader evidently bought 2,000 INHX $10 calls at $2 per. That’s a position twice the size of the average daily volume of INHX calls, he reported.